A willingness to dive beneath the numbers
January 21, 2021
Ahead of next week’s ‘Demystifying financial statements’ professional development course with Liz May from our partner Grant Thornton, we asked Liz to explain some of the fundamentals of finances for board directors.
Why is it important for all board directors to know the basics of finances?
When you join a board, you accept the obligation to look after your organisation’s finances. The board is expected to be capable of understanding the affairs of the organisation well enough to reach an informed opinion of its financial capacity. Naturally, this requires some familiarity with financial reports.
What’s the key thing you look for in financial reports?
Accuracy of the data and timeliness of the financial preparation are the most critical things that I look for – and indeed what board members must demand. Financial accounts are required so that management and the board are able to make informed decisions. If these decisions are based on inaccurate financials, or financials that are either too old, or based on outdated assumptions, then poor decisions are likely to result.
Whilst many are naturally drawn to the profit and loss result (are we profitable?), this is not the key financial indicator to guide you. Many profitable businesses ‘go broke’, and unprofitable businesses may still be perfectly viable.
Financial accounts must be read in totality, with a willingness to dive beneath the numbers to truly understand the affairs of the business.
What will people take away from this course?
I’m certainly hoping there will be something in it for everyone.
For those with limited financial knowledge – gaining some comfort around key accounting terms and what they mean may be the outcome. For those with more experience – becoming aware of some of the early warning signs of financial distress, and the questions to ask of management to assist in sound decision making may help.
Find out more about the ‘Demystifying Financial Statements’ course on 28 January here.